It is daft to buy US stocks with the dollar so strong against the pound?

[Hampshire101]

Hi,
Looking at the Nasdaq and the S&P 500 i’ve identified a couple of US stocks I would like to buy using my UK ISA with T212

However the dollar is so strong against the pound at the minute that if i buy £1k’s worth of shares today the number of US shares that will buy me will be quite low.

Would you more experienced guys be able to advise please as to whether its best to wait for a weaker dollar before buying?
I’m not a trader but a longer term investor by the way (2 to 3 years)

Thanks
HL

[matteventu]

I’ll start stating the obvious: 2-3 years cannot be considered “long term” in the investment market. Not in the slightest.

There isn’t a fixed rule of what time frame constitutes a long term investment, but it’s commonly considered to be between at least 5 years, and 10-20+ years.

2-3 years in the stock market, I would personally consider them a short (not even medium) term investment (and, although as I said there’s no fixed rule, I’m sure most people will agree).

Said that - yes, what you’re describing definitely is a risk.
The potential impact of it though depends on what other investments you hold in your portfolio.

I.e. if you currently had a portfolio made up for 80% of UK stocks in £, adding a 5% of Americans stocks in USD wouldn’t be a problem.
On the other hand, if you currently had a portfolio of £500 invested across UK stocks, dropping £1,000 on US stocks in $ could maybe be a risk that’s too high for your own personal situation (as you’d end up having 2/3 of your portfolio invested in a foreign currency).

Unfortunately there’s no answer applicable to everyone, everyone is different in this regard, it does genuinely depends on your personal risk level, on the “allowance” that you’re giving yourself for investing, on the amount of cash savings you hold, on the amount of money that you would accept losing, etc.

Still, “waiting for X to happen” has never been a good strategy in “investments theory”.

Remember: time in the market beats timing the market.

a.k.a you never know when the USD will get weaker, so better to invest now an amount that you could afford to lose, rather than waiting for this or that.

Obviously, I’m not a financial advisor, and the above is just my strictly personal opinion.

[Zrtz]

@Hampshire101 if you’ve done your dd and you find companies trading at 30-40 or even 50% below their intrinsic value would you miss the opportunity over mere currency fluctuation - that would be daft??

[Hbomb]

Genuinely long term it wont make much difference just buy and hold great companies, but it is definitely something to consider both when investing new money now, and also when earnings come round for the next couple Qs.

Also I am more of a value investor so many of my stock ideas are not at -40% or whatever, most are flat or -10% down so currency different is more than the sell offs.

I guess I would ask myself these questions if deploying new money into US stocks:

• How undervalued is the stock based on its own metrics, such as is it below book value, whats its P/E and any metrics you use for that specific business.
• Where does it get its earnings from? As some US companies will now ‘under’ earn due to strong dollar if significant revenue comes from currencies like £ and Euro that have suffered.

Factoring those in I would say if you have some good value opportunities in US stocks at significant discount then sure go for it, but only if you dont have better ideas in your native currency so my case thats £.

An example:
I would (and have recently) put money into Tritax Big Box REIT which is trading at significant discount to NAV and is UK based dealing in £s, rather than put money into Amazon who I need $s to buy their stock and are earnings lots of currencies but will report and make profit converting back in $s. These companies are not apples to apples but fates are partly linked as big ecommerce related businesses.

BUT, companies like Boston Omaha, Nelnet, Markel etc which are some of my favourite stocks right now you need to buy in $s and no real equivalent high quality ideas like them in UK, so I would factor that into any buying decisions at certain price points.

Not sure if any of that helps or makes sense, but generally I am favouring buying UK than elsewhere right now